Falilou Fall
OECD
OECD Economic Surveys: Austria 2026
Abstract
After a prolonged recession triggered by the energy price shock and weak demand in Europe, Austria’s economy is gradually returning to growth. Output is recovering gradually, supported by resilient employment, rising real incomes and easing inflation. The fiscal deficit remains elevated following strong spending increases, but is expected to narrow under the government’s consolidation plan. Over the medium term, ageing and climate transition costs will add to spending pressures, requiring shifts and greater efficiency in spending and a more growth-friendly tax mix. Productivity growth remains weak. Improving education outcomes is essential to boost long-term growth and competitiveness. While progress has been made in expanding renewables, Austria must accelerate grid expansion, streamline permitting and reduce fossil-fuel dependence to reduce high energy costs.
Austria enjoys relatively high per capita income and well-being, supported by strong macroeconomic fundamentals, solid institutions, a large industrial base and dynamic services sector. After a strong post-pandemic rebound, the economy slowed markedly in 2023–24, leading to a prolonged recession, but it is now recovering and projected to grow gradually in the coming years. A substantial fiscal deficit has emerged but is expected to narrow under the government’s fiscal consolidation plans and as growth strengthens. Nevertheless, Austria faces long-term fiscal challenges.
1.1.1. The economy has experienced a prolonged recession
The Russian war of aggression against Ukraine disrupted the post-pandemic recovery and triggered a prolonged recession in Austria (Figure 1.1). The downturn, driven by the 2022 energy price shock, hit Austria particularly hard and will have permanent effect on the level of output. Austria’s economic performance has closely tracked Germany’s, given close trade and other business links, but diverged from the rest of the European Union since 2023 (Figure 1.1, Panel A). After two years of contraction, economic activity began a modest recovery in late 2024. Between the fourth quarter of 2022 and the trough in the third quarter of 2024, real GDP declined by 2.8%. Output fell across most sectors—industry, manufacturing, retail, trade, and services—while construction slumped sharply. By contrast, public sector activity and some services sectors expanded, partly cushioning the downturn.
Year-on year, percentage change
Note: The EU aggregate corresponds to the composition of European Union as of 2020. The OECD aggregate corresponds to the unweighted average of the OECD countries. Panel B: Final consumption includes Private and Government Final Consumption.
Source: OECD.
Industrial competitiveness has been hit by higher energy prices, rapid wage growth following high consumer price inflation (see Chapter 2). An increasingly uncertain global environment, the upheaval in the automotive sector, the war in Ukraine and intensifying competition from China pose major challenges for exporting firms. Between the fourth quarter of 2022 and the second quarter of 2025, real exports of goods and services declined by 5.5%. Most of this fall occurred within the EU, reflecting Austria’s deep integration into German and Central, Eastern and South-Eastern Europe value chains. By contrast, exports to the United States rose strongly in 2023 and 2024, driven mainly by pharmaceutical products. New U.S. tariffs on EU goods are expected to impact Austrian exports overall (Figure 1.2). The United States accounts for about 8% of Austrian goods exports, but much of the impact will occur indirectly through reduced demand from European partners, as many Austrian products are embedded in goods exported by its partners (Figure 1.2, Panel D).
Share of exports by sector and destination, 2023
Note: Panel A: Values are balanced and adjusted for re-exports. Categories follow the OECD BIMTS CPA 2.1 classification: “Food, beverages and tobacco” (C10T12); “Wood, paper products & printing” (C16T18); “Fuel, chemicals, plastics & other non-metallic mineral products” (C19T23 excl. C21 Pharmaceuticals); “Basic metal & fabricated metal products” (C24_25); “Machinery and electrical equipment” (C26–C30); “Transport equipment” (C29–C30); “Others” comprise the remaining mainly manufactured products. Panel B: Top five destinations shown; “Other EU countries” covers OECD members in the EU. Panel C: Trade shares based on OECD Balanced International Merchandise Trade (2023). Panel D: Goods data refer to total industry (ÖNACE). Countries shown reflect Austria’s most relevant destinations.
Source: OECD Balanced international merchandise trade statistics (BIMTS), IMF (Goods, Panel B), OECD International Trade in Services (database), OECD Economic Outlook, Volume 2025 Issue 1: Tackling Uncertainty, Reviving Growth, OENB, Austrian National Bank.
Inflation surged in 2022 as soaring energy prices spread across the economy (Figure 1.3). Thanks to extensive energy support measures introduced in 2023, energy prices began to fall, helping to slow inflation. However, backward-looking wage adjustment to inflation has led to persistent price pressures, especially for services, which are highly wage intensive. Food prices also contributed to keeping inflation high. While headline inflation peaked in late 2022 in year-on-year terms, it has remained above 3% in underlying terms.
Inflation rose again in January 2025, following the expiry of energy support measures and other factors. Energy inflation rose sharply in early 2025, surging from –7.8% to +5.2% from December 2024 to January 2025, largely due to the end of the electricity price brake, the reinstatement of the electricity and natural gas levies, the reintroduction of renewable energy charges, higher electricity and gas network fees and an increase in the CO₂ price. These changes will mechanically add to measured inflation throughout 2025. However, core inflation is expected to ease gradually towards 2% in the coming years.
Note: Panel A: Data refer to COICOP 1999 divisions. Panel B: Energy price support measures directly reduce, regulate or cap energy market prices or reduce energy end-use through reductions in VAT or excise duties. Energy-related income support involves budgetary transfers linked to the level of energy consumption while non-energy-related income support directly increase the disposable income of beneficiaries through budgetary transfers or tax reductions without any link to energy consumption.
Source: OECD Consumer Prices Indices (database); and OECD (2023), Energy Support Measures Tracker.
1.1.2. Demand remains weak and savings are rising, despite a strong labour market
Domestic demand—particularly private consumption—has remained weak during the prolonged recession. High inflation in 2022 and 2023 initially caused real wage losses and a fall in consumption due to delayed wage adjustments. In 2024, however, strong nominal wage growth combined with easing inflation led to a sharp rise in real household incomes but only a moderate increase in consumption. Households have remained cautious, increasing their savings amid uncertainty about geopolitical risks, inflation, and Austria’s wider prospects. The savings rate rose from 8.7% in 2022–2023 to 11.7% in 2024 and it is expected to remain elevated at around 10.4% in 2025 as consumer confidence remains weak (Figure 1.4, Panel A). The tourism sector representing 4.2% of GDP in 2023, surged in 2024 reaching around 4.5% of GDP and has further increased in 2025, contributing to sustain activity. The number of visitors and night spent has increased. According to provisional data, overnight stays reached 157.27 million and arrivals of guests increased to 48.17 million in 2025. This is 1.9% more overnight stays and 3.1% more guests than in 2024, the strongest year to date (Statistik Austria, 2026). The indirect effect of tourism on across all economic sectors – from accommodation and food service activities to transport, trade, arts, entertainment and leisure – contributed to supporting aggregate demand.
Industrial production reached a trough in October 2024, when it was down 9% from the fourth quarter of 2022. The decline is largely attributable to energy-intensive sectors, which were particularly affected by the rise in energy prices triggered by the Russian war of aggression against Ukraine. Industry has been affected by high energy prices, wage increases, triggered by high inflation and the difficult international environment. The exporting industrial sector faces major challenges from a combination of uncertain US tariff policies, disruption in the automotive industry, the war in Ukraine and growing competition from China.
The downturn in construction—particularly residential building—has also weighed on economic activity. Residential investment began to decline as early as mid-2022, reflecting higher financing costs and the turning of the housing cycle. Construction output fell throughout 2023 and 2024 (Figure 1.4, Panel B). However, rising building permits since mid-2024 have started to feed through, and construction activity is expected to gradually recover from 2026. More broadly, investment contracted in 2023 and 2024 but is showing signs of a gradual rebound in 2025.
Index, seasonally adjusted
Note: Panel A: Data correspond to net saving of households including NPISH in relation to disposable income (gross) adjusted for changes in pension entitlements. Panel B: Data correspond to section F, NACE rev2.
Source: OECD, MEI (database).
The labour market has remained relatively resilient, despite the weakness of GDP growth (Figure 1.5). Employment continued to rise slightly in 2024, driven partly by job creation in the public and public-related sectors. However, unemployment edged up in 2024 and 2025 as employment in industry and market services declined. Labour shortages that had constrained business activity in the aftermath of the pandemic eased during 2024 and early 2025 (Figure 1.5, Panel B). The gradual increase in the statutory retirement age for women, introduced in 2024, has also helped ease labour supply pressures. Of every eight women affected, seven remain in employment longer with the remaining woman in longer unemployment (WIFO, 2025). While both part-time and full-time employment have increased since 2019 overall, women’s part-time work has risen while their full-time work has declined.
Real wages rose sharply in 2024 as inflation moderated, while nominal wages continued to adjust to past price increases, widening the competitiveness loss vis-à-vis many other euro area countries. In Austria, wage bargaining is largely backward-looking, causing nominal wages to respond to inflation with a lag and tends to follow consumer prices, including increases in the costs of imported energy and food (see Box 1.1). Higher labour compensation has contributed to a notable rise in the labour share (Figure 1.5, Panel C). In 2025, however, wage agreements showed early signs of wage moderation as rising labour costs began to weigh on employment in labour-intensive sectors, particularly services.
To ensure competitiveness is maintained and that wages keep in line with productivity, the inflation reference in wage bargaining could be adjusted. Alternative proposals include using the GDP deflator (more stable but less timely), core inflation (favoured by the Central Bank for being less volatile and closely correlated with domestic prices) or forward-looking measures of inflation. Several OECD countries, such as Belgium, France and Italy, use core inflation or a similar national index excluding volatile components and imported goods as a reference or index in their wage bargaining. Using the GDP deflator within the Benya formula could preserve flexibility while preventing distortions caused by temporary or imported price shocks. Anchoring collective bargaining outcomes more closely to developments in productivity and the GDP deflator as well as the overall economic conditions, would help maintain competitiveness.
Note: Panel A: EU aggregate reflects the 2020 EU composition. Data are seasonally but not calendar adjusted. Panel B: Net balances are the difference between weighted shares of firms reporting favourable vs. unfavourable answers. Panel C: Labour share is labour compensation over GDP net of taxes (minus subsidies) on production and imports. Panels B & C: Grey area indicates the forecast window. Panel D: Labour compensation rate is total employee compensation divided by dependent employment and deflated by the consumption deflator.
Source: Eurostat Labour Force Survey (database), EU Harmonised Business and Consumer Survey (database).
Austria’s collective bargaining system has been viewed as highly effective, with nearly all private-sector workers covered by agreements negotiated mainly at the sectoral level. The system’s organised decentralisation allows for annual adjustments to wages and conditions, and contributes to flexibility and strong labour relations.
Wage negotiations are guided by the “Benya formula,” which informally links wage increases to past consumer inflation, labour market conditions and productivity growth to maintain purchasing power and a stable labour share of income.
However, since 2022, imported inflation—especially from rising energy prices—has challenged this model. The gap between consumer price inflation and the GDP deflator has caused swings in both real wages and the labour share, exposing weaknesses in using past CPI inflation as the main reference.
Austria’s economy features widespread indexation mechanisms, linking many prices, wages, and government benefits to past inflation. About 13% of household spending is directly indexed, mainly through rents (5%), insurance (3.8%), and housing-related services. On the public side, pensions and other benefits are adjusted with inflation, while income tax brackets are partially adjusted to limit bracket creep.
A simulation of a 1% inflation shock suggests that second-round effects from indexation and wage adjustments are front-loaded (OeNB, 2025). Inflation would rise by an additional 0.4 percentage points in the first year and 0.16 points in the second, before levelling off. After four years, the cumulative price increase reaches 1.7% with no further impact thereafter. If indexation were reduced so only half the inflation shock feeds into wages, the total effect after four years drops to 1.4%. Roughly one-third of the secondary inflation comes from formal indexation, and two-thirds from de facto wage indexation.
Source: OECD, Economic Survey of Austria 2024 and OeNB (2025) https://www.oenb.at/Presse/oenb-blog/2025/2025-09-05-hohe-inflation.html.
Fiscal policy helped stabilise demand in 2024 and 2025. The fiscal deficit widened from 2.6% of GDP in 2023 to 4.7% in 2024 and is projected to remain around 4.5% in 2025. Government spending rose sharply by 9.3%, while revenues increased by only 5.3% in 2024 (Figure 1.6). Higher expenditure mainly reflected the lagged impact of inflation adjustments on wages, pensions, and indexed social benefits (Table 1.1). The evolution of public spending supported household income and demand, thereby limiting the depth of the recession. The structural primary balance remained substantial and negative at -2.5% in 2024. Conversely, the expiry of COVID-related aid subsidies reduced spending by about 0.3% of GDP in 2024. Interest payments have increased.
Note: Panel A: Shaded area indicates OECD projections. The OECD aggregate corresponds to the unweighted average of the OECD countries.
Source: OECD Economic Outlook: Statistics and Projections (database).
Source: Ministry of Finance, 2025, “Report on effective measures to correct the excessive deficit”, October 2025.
1.1.3. Growth is projected to pick up gradually
Economic activity is projected to recover gradually over the next two years, with GDP growth of 1.1% and 1.3% in 2026 and 2027 (Table 1.2). Household consumption will remain solid as real disposable incomes rise, supported by easing inflation and resilient employment. The gradual unwinding of excess savings could further sustain consumption. Financial conditions are expected to improve as inflation recedes and interest rates decline, supporting a progressive recovery in investment from 2026 onwards. Export growth will also strengthen as economic activity rebounds in Austria’s main trading partner, Germany. Higher German public investment will boost growth and through trade marginally spill over into Austrian exports. The labour market is expected to loosen slightly, with a stable unemployment, while wages should remain resilient.
Inflation is projected to moderato to 2.5% in 2026 and 2.2% in 2027. Energy inflation—the main driver in 2025—should decline in 2026 as base effects fade and lower wholesale prices gradually pass through to consumers. Still rising wages, persistent retail and services inflation will continue to weigh on headline inflation, while a planned tobacco tax increase will also add modest upward pressure in 2026.
Significant global uncertainties continue to cloud the outlook, while tail risks exist (Table 1.3). The intensification of geopolitical tensions in Europe could impact Austria and its main trading partners. Security and trade risks remain high. Increased tensions could impact demand and uncertainty in the region, raise energy prices and test the resilience of key infrastructures. Austria’s foreign value added in exports—around 32%, compared with 16% in the EU—is among the highest in the OECD, heightening exposure to rising trade barriers and global fragmentation (Figure 1.7). Despite some diversification of trade partners (Figure 1.2), goods exports remain highly concentrated in machinery and electrical equipment (25%) and transport equipment (14%). The industrial sector continues to perform weakly, and uncertainty about its prospects remains elevated. Growing competition from China, particularly in the automotive sector, poses an additional risk. Further diversifying input sources and export specialisation will be crucial to renewing industrial competitiveness. Austria also remains highly exposed to gas prices: renewed energy price increases would undermine competitiveness, fuel inflation, and trigger new wage pressures.
Important revisions to quarterly—and occasionally annual—GDP figures hinder short-term projections. In September 2025, the latest results of Austria’s national accounts were published, revising data for the years 2021 to 2024, as well as the corresponding quarterly figures up to and including the second quarter of 2025. Part of the revision reflects new surveys and data, which are welcomed improvements. However, information gaps and delays in the transmission of firm-level and administrative data persist. In particular, VAT administrative data are transmitted with longer delays than in most other European countries. Shortening the transmission lag of VAT data would improve the estimation of trade and services activity and enhance the accuracy of quarterly GDP estimates.
Total activities, Percentage, 2022
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries.
Source: OECD 2025 Trade in Value Added (TiVA), database.
Annual percentage change, volume (2020 prices)
Note: 1. Contribution to changes in real GDP. 2. As a percentage of potential GDP. 3. As a percentage of household disposable income. 4. As a percentage of GDP.
Source: OECD (2025), OECD Economic Outlook 118: Statistics and Projections (database).
1.1.4. Long-term growth prospects are modest, but could be raised by reforms
Potential GDP per capita growth has weakened since the pandemic (Figure 1.8). A shrinking working-age population, low productivity growth, and high energy costs have eroded industrial competitiveness. Trend labour productivity growth is low, held back by low capital intensity and rising part-time employment. Both cyclical headwinds and structural weaknesses continue to constrain Austria’s productivity potential. Policy reforms are essential to unlock stronger and more inclusive growth. Increasing competition and business dynamism would boost innovation and productivity (see Chapter 2). Pension reform and higher employment of older workers (for example Action 55+), immigrants and women would mitigate the labour supply impact of ageing. Overall, the policy measures recommended in this Survey could significantly lift Austria’s long-term growth potential (Box 1.2, Table 1.4). Austria must also address long-term challenges related to skills and energy security and costs.
Contribution to potential output per capita growth, in % points
Source: OECD Economic Outlook database.
This box summarises potential medium-term impacts of selected structural reforms included in this Survey on GDP (Table 1.4). The quantification impacts and the packages of reforms are only illustrative.
Source: OECD long-term model and OECD calculations.
Improving education performance would help raise productivity
The ageing of the population is leading to a reduction of the labour force. Using and skilling the full workforce would be key to maintain potential growth by raising productivity. Austria invests heavily in education. Spending per student amounts to 29.6% of GDP per capita, well above the OECD average of 25.3%, representing 4.7% of GDP (Figure 1.9). This places Austria among the top four OECD countries in spending per student from primary to tertiary education. Public funding dominates, with governments providing 96% of total expenditure at primary to post-secondary non-tertiary levels, compared with an OECD average of 90% (OECD, 2025c). Spending is highest at tertiary level, reflecting strong investment in research and development. At pre-primary level, government spending rose by 24.5% between 2015 and 2022, partly driven by a 10.5% increase in enrolment as early years childcare has expanded.
Austria’s education system delivers good outcomes in terms of skills overall, but social background strongly shapes opportunities. In 2023, 63% of young adults with tertiary-educated parents also attained tertiary education, compared with just 16% among those whose parents lack upper secondary education—one of the widest gaps in the OECD (Figure 1.10). To counter this social background effect, Austria introduced from 2025 a “Chancenbonus” programme based on a social index, which considers parental education and language spoken at home to provide additional resources to schools with many disadvantaged pupils. The programme will be implemented from the school year 2026/27. Early tracking at age 10–11 into Gymnasium and Mittelschule reinforces these inequalities by limiting interaction across social groups and reducing catch-up opportunities for disadvantaged students (OECD, 2020[19]). Delaying tracking and strengthening support for students from low-education backgrounds would enhance both equity and efficiency in education.
A weakness in skills is that many Austrian adults have low literacy proficiency. About 31% of 25–64-year-olds score at or below Level 1 in the OECD Survey of Adult Skills (PIAAC), compared with 27% on average across the OECD (OECD, 2025c). Adults with tertiary education score, on average, 43 points higher than those with upper secondary qualifications—a gap larger than the OECD average of 34 points. Even accounting for migrant background, Austrians’ literacy scores remain below peers and have declined over time. Strengthening basic skills and lifelong learning will be essential to raise workforce proficiency and future productivity. The new educational leave programme, starting in 2026 and with a higher focus on low-skilled workers, could improve lifelong learning with targeted training provided that the financing share of employers is not a barrier to access.
Expenditure on educational institutions, primary to tertiary education, 2022
Note: The OECD aggregate corresponds to the simple average of the OECD countries. Data for United States refer to 2021.
Source: OECD (2025) Education at a Glance.
Several indicators point to declining performance in Austria’s education system. The share of students repeating a grade in lower secondary education is high and rising (Figure 1.10, Panel C). Grade repetition—when students fail to meet promotion requirements—aims to help struggling pupils but often produces negative outcomes, especially below upper secondary level (OECD, 2025c). Repetition is linked to lower academic performance, weaker school engagement, and a higher risk of early school leaving, even after accounting for socio-economic factors (Moulin and Sari, 2025; OECD, 2023). Austria should review and limit grade repetition, shifting instead toward targeted remedial support such as tutoring or summer programmes. Many Nordic countries (for instance, Finland, Sweden) have successfully replaced grade repetition with automatic promotion and individual learning support, improving both equity and outcomes.
Most Austrians aged 18–24 are engaged in education or employment, a key stage for building skills and entering the labour market. However, a growing minority are not in education, employment, or training (NEET)—a group at risk of long-term exclusion. Austria’s NEET rate, though still low, has risen since the COVID-19 pandemic (Figure 1.10, Panel D). Contributing factors include school dropouts and low tertiary completion rates. Around 13% of students leave university after the first year of a bachelor’s degree, matching the OECD average (Figure 1.11). Such high early dropout rates may reflect mismatches between expectations and study demands, insufficient career guidance, or inadequate academic preparation and admission procedures. Strengthening student orientation, mentoring, and tutoring, especially in the first year of tertiary education, would help reduce dropouts and improve labour market readiness.
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. A selection of countries is shown.
Source: OECD Survey of Adult Skills (PIAAC); OECD (2025) Education at a Glance.
Students who entered a bachelor's (or equivalent) programme and dropped out after the first year, percentage, 2023
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. The survey includes full-time students who entered tertiary programmes for the first time. The reference year (2023) represents three years after the theoretical end of the programmes; 2021 represents one year after, and 2020 the theoretical end. Entry years—and therefore reference years for dropout rates—vary by country depending on programme length.
Source: OECD (2025), Education at a Glance.
Austria’s tertiary completion rates remain low by international standards. Only 21% of new entrants to bachelor’s programmes graduate within the theoretical duration, rising to 42% after one extra year and 60% after three (Figure 1.12, Panel A). This compares with OECD averages of 43%, 59%, and 70%, respectively. In contrast, short-cycle tertiary programmes, which are mostly vocational, show much higher completion rates (Figure 1.12, Panel B). The share of students entering bachelor’s programmes (39%) is well below the OECD average (77%), reflecting Austria’s strong upper secondary vocational education and training (VET) system. Completion rates vary sharply between public and private institutions. Private institutions outperform public ones by over 50 percentage points, a gap that narrows to 25 points three years beyond the standard duration (OECD, 2025c). The differences reflect selective admissions, programme structure, and study conditions. Public universities generally have open admission, while private institutions screen applicants more rigorously. Students in private universities and universities of applied sciences also report higher satisfaction with teaching quality, clearer course organisation, and greater study intensity, all of which support timely completion (Zucha et al., 2023). Other OECD countries have improved completion rates by linking funding to performance. In Estonia, 20% of tertiary funding depends on indicators such as completion rates. Denmark ties funding to study duration and graduate employment, with institutions losing up to 3.75% of core funding if average completion times exceed the norm. Similar systems exist in Finland, Israel, and Lithuania, while Norway conditions student loan-to-grant conversion on degree completion. Further tightening performance-based incentives introduced in 2018 by, for instance, increasing the European Credits Transfer System (ECTS) points targeted per year (16 ECTS), could strengthen institutional accountability and student success.
Percentage, 2023
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. The survey includes full-time students who entered tertiary programmes for the first time. The reference year (2023) represents three years after the theoretical end of the programmes; 2021 represents one year after, and 2020 the theoretical end. Entry years—and therefore reference years for dropout rates—vary by country depending on programme length.
Source: OECD (2025), Education at a Glance.
Strengthening pathways from VET to tertiary education is crucial in Austria, where two-thirds of upper secondary students follow vocational tracks. While VET equips students with strong labour market skills, it should also provide routes to further study, enhancing lifelong learning and social mobility (Box 1.3). Expanding these pathways would raise the attractiveness of VET and allow graduates to upskill or reskill later in their careers. Ensuring vocational graduates are well prepared for tertiary education is essential. Students from colleges of higher vocational education (five-year track) have to complete a final exam (Reife- und Diplomprüfung) that qualifies them for tertiary educational programmes. But some VET graduates (Berufsschule and Lehrabschluss) can only access short-cycle tertiary programmes, while graduates of three-year intermediate schools for vocation education may continue within the same institutions (Berufsbildende Höhere Schulen). The higher VET sector remains fragmented, with numerous providers and qualifications outside the formal system. The Federal Act on Higher Vocational Education and Training (HBB), in force since 2024, aims to consolidate this sector and establish it as a distinct pillar of the education system (CEDEFOP, 2025). It has consolidated the legal foundations for vocational higher degrees as professional bachelor equivalent to general degrees for professional workers. The new Bachelor Professional introduced in 2022, targeting primarily working professionals is a first step in that direction. Opening more vocational higher education programmes for workers with VET backgrounds would enhance reskilling and recognition. Further developing VET programmes in the ICT field would reduce the shortage in digital workers (see chapter 2).
The International Standard Classification of Education (ISCED 2011) defines distinct vocational tracks for short-cycle tertiary programmes (ISCED 5), but not for bachelor’s, master’s or doctoral levels (ISCED 6–8). Nevertheless, many countries offer professional programmes at higher levels that build on vocational qualifications. These programmes combine advanced theory with practical training, providing upskilling pathways for individuals with vocational education and training (VET) backgrounds to move into highly skilled or supervisory roles.
As tertiary systems adapt to more diverse learners and rising demand for advanced technical skills driven by digitalisation and the green transition, professional programmes are gaining importance. They strengthen links between tertiary education and the labour market, promote lifelong learning, and ensure attractive career prospects for workers with VET backgrounds.
Recent reforms reflect this trend:
Germany (2020): Amended its Vocational Training Act to create higher vocational qualifications—Certified Professional Specialist (ISCED 5), Bachelor Professional (ISCED 6), and Master Professional (ISCED 7)—to signal equivalence with academic degrees.
England (UK): Degree apprenticeships combine academic study and work-based training, leading to undergraduate or master’s degrees over 3–6 years. They are widely used but are being refocused towards early-career learners.
Sweden (2020): Introduced short Higher Vocational Education (HVE) courses—up to six months—offering flexible upskilling for employed adults in cooperation with industry.
Netherlands: The two-year Associate Degree in higher vocational education blends theory and practical skills, preparing students for employment or further study.
Switzerland: Most professional examinations at tertiary level are situated at the ISCED 6 level and examples of qualifications include audio-prothesists, international trade experts or cyber security specialists.
Source: OECD (2025), Education at a Glance 2025.
High dependence on imported fossil energy affects competitiveness and security
High energy prices continue to hinder competitiveness and production (Figure 1.13). Electricity prices for industrial use remain 40% above their level before the Russian war against Ukraine. Although natural gas prices have declined since 2022, they are still elevated. Industrial energy prices have increased more than in other EU countries. In Austria, electricity prices closely track fluctuations in natural gas and coal markets. Dependence on Russian natural gas has made Austria highly vulnerable to price volatility. In April 2024, 81% of imported gas still came from Russia, an even larger share than in February 2022. In January 2025, gas deliveries through pipelines via Ukraine and Slovakia stopped. Austria has responded by further diversifying gas sources, mainly through imports from Germany and Italy, expanding storage capacity, and developing new transport lines such as the West Austria Gas Pipeline. Because Austria is landlocked, it can only rely on liquefied natural gas imports arriving through the North Sea, the Baltic, and the Mediterranean. Participating in the EU’s joint gas purchasing mechanisms under the EU strategy can leverage collective bargaining power and secure more diversified supplies.
Expanding renewable energy production will strengthen energy security, whilst also reducing carbon emissions. Over the past decade, domestic energy production has averaged around 37% of total domestic supply, mainly from renewable sources (Figure 1.14). Austria has one of the highest shares of renewables in electricity generation in the OECD: about 60% of electricity comes from hydropower, and less than 20% from fossil fuels. The government aims to cover 100% of total electricity consumption with domestic renewables (on a national balance) by 2030. While the government has simplified and eased the deployment of small-scale hydropower, photovoltaic, and solar systems, administrative barriers to building large-scale renewable infrastructure remain high (OECD, 2024a). In Austria, wind power projects typically take five to six years to secure permits—longer than in most Western and Central European countries (European Commission, 2023). To accelerate investments, Austria could combine designating renewable energy projects as being of “overriding public interest” with requiring subnational governments to identify priority areas where permitting is streamlined, following examples from France, Spain, and Germany. Passing and implementing the Renewable Expansion Acceleration Act would help simplify permitting—by introducing a one-stop shop, defining energy transition projects as overriding public interest, and standardising criteria and thresholds for approvals.
Real Indices of energy end-use prices, Industry sector (including transport)
Note: The OECD aggregate corresponds to the weighted average of the OECD countries. To calculate the real price index, the nominal prices were deflated with country-specific producer price indices (2015=100) for the industry sector and with country-specific consumer price indices (2015=100) for the household sector.
Source: IEA, Energy end-use-prices (database).
Note: Panel A: “Other renewables” includes electricity, heat, solar, wind and other renewables. Total energy supply equals production + net imports + stock changes – international bunkers. Panel B: “Other” includes coal and coal products, solar, wind, other renewables and heat. Final consumption is end-use plus non-energy use. Latest data are for 2023. For both panels the measure is thousand tonnes of oil equivalent (ktoe). Panel D: Energy-intensive industries comprise ISIC rev.4: 19 (Coke & petroleum), 23 (Non-metallic mineral), 20 (Chemicals), 24 (Basic metals), 17 (Paper), 22 (Rubber & plastic) and 16 (Wood). These sectors form an EU industrial ecosystem with dedicated policy guidelines (see European Commission, Annual Single Market Report 2021). “Manufacture of wood” covers wood and cork products; “Manufacture of paper” includes paper products, printing and media reproduction. EU aggregate reflects the 2020 EU composition. Panels C & D: OECD aggregate is the simple average across OECD countries.
Source: IEA World Energy Balances, OECD Environmental database.
Scaling up renewable electricity requires major grid upgrades and expansion. Grid capacity shortfalls already constrain new wind and solar projects, particularly in eastern Austria (OECD, 2024a). The current network cannot handle rising transmission and distribution demands. Administrative hurdles and complex permitting procedures—split between federal and provincial levels—remain key bottlenecks (Banasiak, Najdawi and Tiik, 2022). Lowering grid access fees, harmonising approval processes, and creating a central coordinating authority under the Renewable Energy Expansion Act would accelerate progress. The Austrian Network Infrastructure Plan (ÖNIP) should define clear investment priorities, while regulatory reforms to finance and digitalise the grid will further speed up connections and reduce costs. Austria is also a member of cross-border grid networks as the ALPACA — Allocation of Cross-zonal Capacity and Procurement of Automatic Frequency Restoration Reserves (aFRR) Cooperation Agreement – with Czechia and Germany, allowing the exchange and balancing of power capacity. The association also allows joint procurement to reduce costs and enhance power balancing. Further developing such agreements would enhance balancing energy intermittency and security by permitting to cope with shortages in production or failure in transmission systems.
Mobility remains car-dependent, and the shift to low-emission transport is slow. Cutting fossil fuel use would reduce costs and boost competitiveness. Reforming fiscal incentives for transport and fuel use can further support decarbonisation. Commuter tax deductions and company-car benefits encourage long commutes and car dependence, while low diesel taxes attract cross-border fuel buyers. Phasing out these subsidies and aligning fuel taxes across fuels and with neighbouring countries could cut emissions and raise additional revenue (OECD, 2024a). Excise taxes on energy, fixed in nominal terms, in particular on diesel and gas, should be updated more regularly as the last update was in 2014.
The financial sector has remained resilient despite relatively high debt levels in the economy and rising interest rates in 2022–23. Banks’ capitalisation continues to exceed regulatory requirements (Figure 1.15). The Common Equity Tier 1 (CET1) capital reached 18.6% of risk-weighted assets by mid-2025 (FSR, 2025). The leverage ratio stood at 9.0%, well above the 3% minimum. Strong profits in recent years have supported higher capital buffers; although declining from 2023, bank profits totalled EUR 10.8 billion in 2024 (FSR, 2025b). Robust net interest income, especially from corporate lending and central bank deposits, has been the main driver. However, with interest rates declining and corporate bankruptcies rising, profitability is expected to deteriorate, underscoring the need for higher profit retention to strengthen capital. The countercyclical capital butter remains at 0%, reflecting low credit growth and the limited sensitivity of the current credit to GDP gap indicator to systemic risk. Several European countries—such as Denmark, Ireland, Germany and Belgium—introduced positive buffers despite negative gaps. The Austrian National Bank incorporated additional indicators to better capture procyclical risks starting in October 2025 (Box 1.4).
The new OeNB method aims to enhance effectiveness and transparency. Starting in October 2025, the OeNB will apply a new framework for assessing procyclical systemic risks to determine the countercyclical capital buffer (CCyB). The previous approach relied mainly on the Basel credit-to-GDP gap indicator, which assesses whether credit growth outpaces economic growth. The new method broadens the analysis to five dimensions:
Financial sector: indicators such as the Texas ratio (the ratio of non-performing assets to the sum of a bank's tangible common equity and loan loss reserves) and quarterly growth of domestic loans to households and firms.
Private sector: debt service ratios (DSR) of non-financial corporations and households.
Macroeconomic conditions: indicators such as new insolvency filings.
Financial markets: the Composite Indicator of Systemic Stress.
Credit-to-GDP gaps: two complementary measures to capture cyclical risk dynamics. Cyclical risks are identified when indicators exceed or fall below thresholds defined by the 10th or 90th percentiles of historical distributions.
Additionally, three indicators—capital surplus, net interest income/profitability, and liquidity buffer quality—will be assessed for both upward and downward deviations to capture a full range of cyclical vulnerabilities.
Source: Financial Stability Report, 2025.
Banking system liquidity remains strong. The ratio of liquid assets to short-term liabilities stood at 71%, while high-quality liquid assets covered 177% of net liquidity outflows under a 30-day stress scenario at end-2024—well above the 100% regulatory minimum (FSR, 2025). The ECB’s monetary policy normalisation and the reduction of excess liquidity have led banks to shift portfolios away from central bank reserves towards government and covered bonds, increasing exposure to sovereign risk. Austrian banks hold a relatively high share of EU government bonds (61.5%) issued outside of Austria, compared to an EU average of 28%, with large exposures to Spain, France and Germany. While these assets receive preferential treatment in liquidity calculations, their concentration creates potential vulnerability in the event of sovereign downgrades and should be carefully monitored.
Risks to financial stability stem from rising business bankruptcies, small banks’ exposure to non-performing loans (NPLs), commercial real estate lending, and cross-border exposure to Central, Eastern and South-Eastern Europe. Although credit growth has declined, non-performing loans (NPLs) remain relatively high compared with other OECD countries (Figure 1.15 C). The share of NPLs in total loans rose to 3.0% in 2024 (15C), driven mainly by exposures to commercial real estate and small and medium-sized enterprises. Corporate insolvencies surged in 2024, with nearly 6,600 companies filing for bankruptcy (FSR, 2025). The most affected sectors include real estate and construction, retail, and hospitality. Although the economy is now recovering, close monitoring of financial institutions exposed to the most affected sectors remains essential. In particular, small banks pose an elevated source of risk. Institutions with total assets below EUR 10 billion experienced a 115% increase in NPL volumes between the end of 2022 and the end of 2024, compared to less than 40% for large banks (FSR, 2025). As NPLs tie up a larger share of small banks’ capital, they constrain lending capacity. Stricter supervision and enforcement of prudent lending standards for smaller banks are therefore warranted.
Percentage, 2024
Note: A selection of countries is shown.
Source: IMF Financial Soundness Indicators (database).
The commercial real estate sector has become an increasing source of financial risk. Around one-third of the EUR 52 billion in total new corporate loans issued in 2024 was granted to firms in the construction and real estate sectors. Since 2022, the rate of NPLs in total lending among real estate companies has risen by 20 percentage points, from 15% to 35%, while that of construction firms has increased by 7 points to 16% (FSR, 2025). In response, a sectoral systemic risk buffer of 1% was introduced in July 2025 to address vulnerabilities in commercial real estate. Nonetheless, ensuring accurate property valuations and maintaining prudent lending standards remain essential to mitigate further risk accumulation.
Non-performing loans (NPLs) in residential real estate loans increased only marginally to 1.3%. The coverage ratio of NPLs by specific loan loss provisions has continued its downward trend since 2019, declining further to 37% in 2024 (FSR, 2025). This leaves banks more exposed to potential losses should collateral values or loan recoveries weaken. Strengthening collateral requirements and improving credit risk assessment standards could help raise loan quality and mitigate future credit risks.
Vulnerabilities in the residential real estate market have eased following borrower-based macroprudential measures introduced in 2022 and upheld by the Constitutional Court in January 2024. These included limits of 35 years on loan maturity, a 90% loan-to-value ratio, and a 40% debt-service-to-income cap. The measures expired in June 2025, as mandated by law. According to the Financial Stability Report (2025), these rules proved effective in reducing lending risks. Although vulnerabilities in the mortgage market are not currently elevated and these rules only binding directly in some parts of the market, these basic limits on excessive leverage are widely applied in other countries and should be made permanent.
Percentage
Note: Panel B: Term deposits correspond to deposits with an agreed maturity (new business).
Source: OeNB, Austrian National Bank.
The Austrian banking sector conducts a substantial share of its activities abroad, particularly in Central, Eastern and South-Eastern Europe (CESEE). Czechia, Slovakia, Romania, Croatia and Hungary are the main host countries of Austrian bank subsidiaries. Total foreign exposure reached EUR 551 billion in 2024—equivalent to 44% of total banking assets and exceeding Austria’s GDP. Of this, about EUR 315 billion is held by subsidiaries in 15 countries. CESEE subsidiaries generated net profits of EUR 5.4 billion, accounting for nearly half of Austrian banks’ total profits (FSR, 2025). Risks from this activity remain contained: the NPL ratio of Austrian banks in CESEE stood at a historically low 1.9%, below the domestic level, with coverage at 64%. However, credit quality in cross-border lending has deteriorated somewhat, driven by rising NPLs in Germany’s real estate and construction sectors. Austria’s strong regional concentration exposes its banking system to potential structural shocks, such as disruptions in industrial value chains. The 2015 systemic risk buffer—updated in 2024—appropriately addresses such long-term, non-cyclical risks, now applying to 12 banks or banking groups at rates between 0.5 and 1.0 percentage points of CET1 capital relative to total risk exposure.
1.3.1. Debt and medium to long-term fiscal challenges
Due to high fiscal deficits of 4.7% in 2024 and 4.5% in 2025, Austria’s gross debt-to-GDP ratio is rising again from around 80% of GDP in 2024 (Figure 1.17). Austria has committed to a medium-run fiscal consolidation path as part of its EU commitments to narrow the deficit and put the debt ratio on a sustainable downward path. However, this will be challenging to achieve and over the medium to long term, Austria will also need to adapt to growing fiscal pressures from population ageing, the green transition, and the rising costs of sustaining its comprehensive welfare model.
Over time, population ageing is creating pressure on the public finances through higher spending and lower revenues (see Chapter 4). Age-related public spending considering pensions, health and long-term care is projected to increase by 1.8 percentage points of GDP by 2050 and by 2.5 points by 2070 (European Commission, 2024). As past reforms take full effect, the rise in pension spending is expected to peak around 2035 before gradually easing, increasing by only 0.3 percentage points per year between 2050 and 2070. However, long-term care expenditures are projected to rise significantly, adding about 2.5 percentage points of GDP by 2070. Overall, fiscal risks related to ageing are tilted to the upside, with alternative projections suggesting even higher potential budgetary impacts (Figure 1.18). Additionally, current defence expenditures are low and could increase substantially given the geopolitical context.
Maastricht definition, % of GDP
Note: The EU aggregate corresponds to the composition of European Union as of 2020.
Source: OECD (2025), OECD Economic Outlook: Statistics and Projections (database); and Eurostat.
Among Austria’s long-term fiscal projections, the European Commission forecasts the lowest increase in ageing-related expenditures, while the projections of the OECD and the Fiscal Council are higher. The European Commission projects low ageing-related spending growth due to strong GDP growth assumptions, weaker cost trends and a projected decline in education expenditure due to a shrinking school-age cohort. The Austrian Fiscal Council incorporates historical spending trends and higher dependency ratios, leading to much higher long-term care cost projections and higher secondary and tertiary participation, raising per-student costs. In particular, the Austrian Fiscal Council model includes a historic “drift” component (cost growth beyond demographics and income) on health spending, while the European Commission assumes no drift.
Changes from 2023, percentage points of GDP
Note: Care includes health and long-term care.
Source: European Commission (2024) and Austria Fiscal Council (2025).
The climate transition will add further pressure to public finances, and its fiscal impact is not yet fully reflected in official projections by the EU and the government (Figure 1.19). The additional long-term costs linked to climate related policies are estimated at 1.1% of GDP by 2050 and 1.3% by 2070 (Austria Fiscal Council, 2025). A key source of fiscal pressure will be the decline in energy tax revenues, projected to fall by 0.6 percentage points of GDP by 2060 due to reduced oil consumption. In addition, potential non-compliance costs under the EU Effort Sharing Regulation—arising from emissions above target—could increase by 0.7 percentage points of GDP by 2050 and 0.6 by 2070.
Projected increase in public spending by policy area, change between 2026 and 2050
Note: Projections for public spending on pension, care (healthcare and long-term care) and education are from the European Commission 2024 Ageing Report. Projections for climate change mitigation are from the 2025 Fiscal Sustainability Report of the Austrian fiscal Council (baseline scenario).
Source: Adapted from OECD (2025), OECD Economic Outlook 118 database.
1.3.2. Achieving fiscal adjustment to put the public finances on a more prudent path
The fiscal consolidation path agreed by Austria with the European Union limits the nominal growth of net government expenditure to 2.6% in 2025, 2.2% in 2026–27, and 2.0% in 2028 as part of a 7-year plan (2031) to put the debt ratio on a more sustainable path (Box 1.6). This medium-term national plan with revenue-measured adjusted spending growing at around 2% each year in nominal terms until 2031, well below potential growth, will lead to an adjustment in the structural primary balance of around 0.5 percentage points of GDP each year. This path aims to return the fiscal deficit below 3% of GDP by 2028 and to put the debt ratio on a downward path in the medium term taking into account ageing costs. This will weigh modestly on demand in the coming years as the deficit narrows to a more sustainable level. Strong labour market conditions and the expected recovery beyond 2026 will support the fiscal adjustment.
Over the medium and longer term, budgetary pressures from ageing and the green transition will require steady structural adjustments in both tax and spending policies to improve fiscal sustainability (Figure 1.20). Illustrative OECD simulations suggest that under the current tax and spending structure (ageing-related as estimated by the European Commission and climate-related costs as estimated by the Fiscal council), the deficit would place the debt-to-GDP ratio on an upward trajectory, adding around 2% of GDP to fiscal pressures by 2050. Putting the debt on a sustained downward path in line with the EU fiscal rules would require a reallocation and reduction of spending and higher revenues amounting to about 4% of GDP from 2027 (“prudent path under fiscal rules,” Figure 1.20). Austria needs a long-term strategy for public spending and taxation to address these challenges, which require significant adjustments in public spending and the tax system, together with ensuring that the system becomes more supportive to growth.
Percentage of GDP
Note: In the “current tax and spending structure with future ageing and climate mitigation costs” scenario, the primary government balance is projected to gradually deteriorate in line with rising costs. The “prudent path consistent with EU commitments” scenario assumes consolidation measures of 4.0% of GDP to stabilise the debt-to-GDP ratio when ageing and green costs are included. The “prudent path with growth of structural reforms” scenario assumes in addition that GDP growth increases with the implementation of structural reforms as shown in Table 1.8.
Source: OECD (2025), European Commission (2024) and Austria fiscal council (2025).
Table 1.5 in Box 1.5 presents an illustrative policy mix of expenditure reprioritisation and revenue measures consistent with this adjustment and aligned with the recommendations in this Survey. This sets out ways to achieve the adjustment in a growth-friendly way. By fostering higher potential growth (Table 1.4), the structural reforms proposed in this Survey would mitigate fiscal pressures (“prudent path and growth impact of structural reforms,” Figure 1.20), leading to even lower debt or allowing less fiscal adjustment to be undertaken to achieve the same debt path.
This box summarises the estimated impact of fiscal policy recommendations in this Survey, together with the budgetary impact of undertaking the recommended structural reforms. The estimated fiscal effects include only the direct impact and exclude potential behavioural responses that might occur due to a policy change. While many recommended reforms in this Survey have budget and GDP implications, not all can be quantified due to model limitations. The package is designed to support growth in a fair and efficient way, as well as achieving the medium-term fiscal adjustment required to narrow the deficit and manage longer-term costs. The fiscal objectives could be achieved using other combinations of spending and tax measures.
Source: OECD calculations.
For 2025, the government aims for spending and revenue measures amounting to about 1.3% of GDP in 2025 and it has set out detailed plans amounting to 1.6% of GDP in net terms for 2026. This includes additional spending of 0.6 billion euros in 2025 and 1.6 billion euros in 2026 on policy priorities. Revenues are expected to rise by 0.3 percentage points of GDP in 2025 and 0.5% in 2026, reflecting both discretionary measures and growth. On the revenue side, new measures are modest and focus mainly on incremental tax adjustments rather than structural reform. Spending is projected to fall by 0.9% of GDP in 2025 and 1.2% in 2026, through targeted cuts and efficiency gains across several policy areas. Overall, spending cuts represent two-thirds of the adjustment while the rest is on the tax side. The focus on spending rather than tax revenue measures is welcome, given Austria’s already relatively high tax-to-GDP ratio. Most savings will come from scaling back green-related subsidies, rationalising selected social benefits, and slowing public investment growth (Table 1.7 and Table 1.6). Operational costs across ministries will be reduced through efficiency measures and administrative savings (Table 1.7). Structural reforms on the labour market and in the pension area, as well as measures to increase the employment of older employees, will have long-term effects, leading to long-term gains totalling 2.7 billion euros in 2029 (BMF, 2025).
However, the 2025-2026 fiscal measures are adjustments essentially within existing policies and marginally reduce many programmes: pursing the required adjustment in later years will require more difficult choices and deeper reforms. Already, a moderation in public wage growth has been adopted. To ensure sustainability without hindering growth, future strategies should focus more strongly on reducing social spending, improving spending efficiency, and prioritising growth-enhancing public investment. Additionally, broadening the tax base of corporate income tax could bring some revenues.
Percentage of GDP
Source: OECD, National Accounts database.
A coalition of the conservative People's Party (OVP), Social Democrats (SPO) and liberal Neos has been in government since March 2025.
In 2024, Austria’s budget deficit reached 4.7% of GDP, exceeding the EU’s 3% limit. As deficits are projected to remain above this threshold in 2025–2026, Austria entered an EU excessive deficit procedure in July 2025. The European Commission recommended limiting net expenditure growth to 2.6% in 2025, 2.2% in 2026–2027, and 2.0% in 2028. Fiscal policy now focuses on restoring compliance with EU rules. Main measures include:
Tax policy: consolidation levies on energy firms and banks, inclusion of e-cars in insurance tax, higher betting and tobacco related taxes, tighter real estate transfer rules, partial suspension of income tax indexation (2026–2029), and anti-fraud initiatives.
Spending cuts: reduced ministry operating costs, abolition of the climate bonus, and lower environmental and mobility subsidies and the low increase in public wages.
Labour and pensions: removal of educational leave, stricter unemployment benefits, measures for older workers, increase in health insurance contributions for pensioners and adjustments to corridor pensions and introduction of a partial pension.
Targeted investments: funding for employment and training (“Action55 Plus”), health innovations, psychosocial care, hygiene VAT relief, language and digital education, and continued defence rearmament.
Detailed additional consolidation measures are expected for 2027 and 2028.
Note: Million EUR. 1) The total of revenue and spending measures include other smaller items not reported.
Source: Ministry of Finance, “Report on effective measures to correct the excessive deficit”, October 2025.
1.3.3. Beyond short-term consolidation, structural fiscal reforms are needed
Reforming social expenditures to cope with ageing pressures
Public expenditure in Austria remains high compared with other European countries, reflecting the large size of its social protection system (Figure 1.21). In 2024, total government spending reached 55.2% of GDP, compared with 49.3% in the euro area in 2023. Social protection represents about 20% of total expenditure (22.8% of GDP), including old-age spending of 14% of GDP in 2023. Health-related expenditure accounts for almost another tenth of total spending (9.5% of GDP), with hospital services alone representing around 4.3% of GDP in 2023. As discussed in Chapter 4, there is room to limit spending increases in pension, long-term care and health by improving efficiency and reducing benefits. Social spending, in particular pensions, offers the highest potential for savings (Barnes et al., 2025). Linking the retirement age with life expectancy gains and raising the effective retirement age by tightening early retirement schemes would yield substantial spending savings. Improving the efficiency of the health care system by better allocating patients between primary care facilities and hospitals and strengthening preventive health policies has the potential to bring savings.
Beyond these reforms, additional structural reforms to increase the efficiency of public spending on main spending components as public employment, subsidies, procurement and outsourcing would create the fiscal space needed to cope with new spending pressures, while maintaining debt around its current level. Rigorous evaluation of social spending programmes is useful to make sure that programmes achieve their goals and in an efficient and effective way.
As a percentage of GDP
Note: Panel A: The categories follow the classification of functions of government (COFOG). Defence includes public order and safety. Other social protection excludes pension expenditures. Other health expenditures exclude hospital services. Pension expenditures cover old age and survivors. Other include all the remaining categories. All categories exclude R&D. Panel B: The OECD aggregate corresponds to the unweighted average of the OECD countries. A selection of countries is shown.
Source: Eurostat, General government expenditure by function; OECD Social Expenditure Database (2025).
Improving the efficiency of social support
Austria has a strong redistributive system operating mainly through the progressive tax system, while in peer countries cash benefits account for the majority of the redistribution (see the joint TBP). Social transfers in Austria are largely progressive, helping to reduce income inequality. Social assistance is the largest means-tested benefit and plays a key redistributive role. The legislative responsibility on social assistance schemes remains with the 9 federal provinces, each of which has its own legislation. In 2019, the Basic Social Assistance Act was introduced and sets maximum standards that may not be exceeded by provinces. Family transfers are the second layer of social benefits but are for the largest part not mean-tested. Therefore, there is scope to enhance the progressivity of family benefit transfers. Families with children receive support through four main programmes:
Family Allowance (Familienbeihilfe): A universal, non–means-tested and non-taxable cash benefit for all families with dependent children. Amounts vary with the child’s age and include supplements for larger families, children with disabilities, and a school-entry bonus.
Child Tax Credit (Kinderabsetzbetrag): A refundable flat-rate credit paid together with the family allowance. From 2025, low-income families receive an additional Child Supplement (Kinderzuschlag). Eligibility for the supplement is based on annual taxable income from employment or self-employment in the previous year, with an income threshold of EUR 25 725. The credit applies to single earners or single parents.
Childcare Allowance (Kinderbetreuungsgeld): A time-limited benefit paid alongside the family allowance, generally for up to three years following childbirth. It can be received as a flat-rate or income-linked benefit and functions largely as a parental leave benefit. It can be received under alternative schemes:
Childcare Benefit Account: a flat-rate benefit amounting to EUR 15 020 over 12–24 months if one parent takes leave, or EUR 18 759 over 15–35 months if both parents do so (EUR 17.65–41.14 per day).
Childcare Benefit Allowance: a flat-rate benefit of EUR 6.06 per day for up to 12 months, in addition to Childcare Benefit Account, targeted mainly at single parents and low-income families.
Income-dependent Childcare Benefit: equal to 80% of prior earnings, capped at EUR 80.12 per day, payable for 12 months (or 14 months if both parents share leave).
Family Tax Credit (Familienbonus Plus): A non-refundable flat-rate tax credit paid together with the Child Tax Credit. The amount depends on the number and age of children.
Total support for families with children is broadly similar across the income distribution (Figure 1.22). Families in the first income decile receive, on average, EUR 7,691 per year, compared with EUR 8,078 in the top decile. This pattern reflects the largely universal design of Austria’s family-related programmes. The small differences observed across deciles arise from two main factors. First, some instruments incorporate income-related elements. The Family Allowance and the Family Tax Credit include supplements for low-income households, while the income-linked childcare allowance provides higher payments to parents with stronger prior labour market attachment. Since July 2025, the child tax credit has also included a top-up for low-income households—the Child Supplement—conditional on receipt of the single-earner or single-parent tax credit. Second, composition effects matter: larger families tend to receive higher total support and are overrepresented in lower income deciles due to the equivalence scale. This broad universality contrasts with approaches in countries such as the Netherlands, where family benefits are more strongly directed towards low-income households (Figure 1.22, white squares). Many European countries combine universal and income-targeted components to achieve greater progressivity.
Distribution of the mean annual benefit (EUR) for families with minors across deciles of equivalised disposable, 2024
Note: Deciles are defined according to the equivalized disposable household income, using the OECD modified scale. Minors are defined as individuals in the household below the age of 18. Family benefits for the Netherlands include child benefits and the child related budget.
Source: OECD calculations using EUROMOD J1.0+ and EU-SILC 2022 data, 2024 policies.
Recent reforms to family benefits have increased the complexity of the system. There is scope to streamline family support, strengthen its redistributive components, and reduce poverty among families with children, while also generating fiscal savings. Merging the Family Allowance and the Child Tax Credit into a single-family benefit, together with the introduction of a progressive reduction of the Child Tax Credit, would enhance redistribution while delivering savings (see Box 1.7). Simulations presented in Box 1.7 indicate that combining the Family Allowance and Child Tax Credit and gradually reducing the Child Tax Credit could generate important savings. If transfers to low-income families were increased while reducing benefits for high-income families, the simulated reform package would reduce inequality and lower the overall poverty rate by about 2 percentage points. Poverty among children under the age of 14 would decline by 6.4 percentage points, while the poverty rate among young adults aged 15 to 24 would fall by 2.4 percentage points. In parallel, reducing fragmentation in social assistance, further developing access to childcare facilities and improving coordination across regions would enhance both the equity and efficiency of Austria’s welfare system. One potential drawback of withdrawing benefits for higher earners is that this raises the marginal effective tax rate and so these measures should be implemented carefully and as part of a wider reform of the tax system.
Reform scenarios are simulated using the OECD’s TAXBEN model and EUROMOD J1 to illustrate the scope for increasing the progressivity of family transfers while generating fiscal savings:
Scenario 1 streamlines family benefits by merging the two main instruments—the Family Allowance and the Child Tax Credit—into a single programme that phases out support for higher earners while maintaining the level of support for low-income households. This scenario allows to assess the potential for fiscal savings of a family policy reform.
Scenario 2 introduces a linear withdrawal of the Family Tax Credit for higher earners to increase the efficiency of spending by reducing support for those on high incomes.
Scenario 3 merges the two main instruments—the Family Allowance and the Child Tax Credit—into a single programme (as in scenario 1) that provides higher support for low-income households combined with means-tested taper as income increases.
In Scenario 1, the new benefit is calibrated to maintain current support levels for low-income households and is gradually reduced once taxable family income exceeds a threshold (T), defined as twice the existing income threshold for eligibility to the Child Supplement. Since the Child Tax Credit applies to families with taxable annual income below EUR 25 725 (around 43% of average income), benefit withdrawal starts at 83% of average income (EUR 51 450). Above this threshold, the benefit is withdrawn at a rate of 6% of income, until it reaches a universal floor set at 15% of the pre-reform maximum benefit. This floor preserves a degree of universality and is reached at around 200% of average income.
As illustrated in Figure 1.23, benefits are withdrawn gradually across the middle of the income distribution, increasing the redistributive effect of family support. The income threshold and withdrawal rate can be adjusted to expand or limit fiscal savings and to determine the minimum level of support retained by high-income families, as well as to preserve work incentives at the margin. Under the illustrative scenario presented in Figure 1.23, the reform generates annual fiscal savings of EUR 1.7 billion, equivalent to around 0.35% of GDP.
Pre and post reform family benefits in Austria for a one-earner couple with 2 children, by earnings level, 2024
Note: The figure shows the amount of family benefits pre and post reform for a 40-year-old couple with 2 children, aged 4 and 6, by earnings of the primary earner. The primary earner is working full-time at the earnings level indicated. The decomposition corresponds to the pre-reform benefit design. The dashed line corresponds to the overall level of post-reform family benefit. The spouse is out-of-work. All values are presented as a percentage of the average wage. Policy reference date: January 1st, 2025, for Austria.
Source: OECD Tax-Benefit Model version 2.8.0, see TBP Reforming family transfers in Austria.
Scenario 2 withdraws the Family Tax Credit once gross earnings exceed 130% of the average wage (EUR 80 586, assuming a 2025 average wage of EUR 61 989). Above this threshold, the tax credit would be tapered at the same 6% rate applied to the unified family benefit, reaching zero at high income levels (Figure 1.24). There is no change for families with earnings below the average wage. For higher-income households, the credit is gradually reduced, increasing income tax liabilities and strengthening the progressivity of transfers to families with children.
Pre- and post-reform family tax credit in Austria for a one-earner couple with 2 children, by earnings levels, 2024
Note: The figure shows the amount of family tax credit and utilized tax credit for a 40-year-old couple with 2 children, aged 4 and 6, by earnings of the primary earner. The primary earner is working full-time at the earnings level indicated. Solid lines correspond to the pre-reform design and dashed lines to the reform design. The spouse is out-of-work. All values are presented as a percentage of the average wage. Policy reference date: January 1st, 2025 for Austria.
Source: OECD Tax-Benefit Model version 2.8.0., see TBP Reforming family transfers in Austria.
In Scenario 3, the baseline benefit is increased by 25%, raising support for low-income families who receive the full entitlement before the income test applies. For example, for a family with two children aged 4 and 6, the maximum entitlement (Family Allowance, Child Tax Credit, and Child Supplement combined) would rise to EUR 8,776.75 annually. This would be phased out once taxable family income exceeds EUR 25,725 (the existing threshold for the Child Supplement) and withdrawn at a rate of 6% of income above the threshold until it reaches a universal minimum equal to 30% of the pre-reform maximum. For a family with two children aged 4 and 6, this implies a guaranteed minimum annual benefit of EUR 2,106.42, thereby preserving a degree of universality.
Figure 1.25 illustrates pre- and post-reform support levels in Scenario 1. The proposed reform increases support for low-income households and remains more generous up to around 130% of average earnings, while gradually reducing benefits for higher-income families (Figure 1.25, dotted line). Overall, the redesigned benefit strengthens the redistributive impact and coherence of Austria’s family support system, with estimated fiscal savings of EUR 37 million.
Pre and post reform family benefits in Austria for a one-earner couple with 2 children, by earnings level, 2024
Note: The figure shows the amount of family benefits pre and post reform for a 40-year-old couple with 2 children, aged 4 and 6, by earnings of the primary earner. The primary earner is working full-time at the earnings level indicated. The decomposition corresponds to the pre-reform benefit design. The dashed line corresponds to the overall level of post-reform family benefit. The spouse is out-of-work. All values are presented as a percentage of the average wage. Policy reference date: January 1st, 2025, for Austria.
Source: OECD Tax-Benefit Model version 2.8.0., see TBP Reforming family transfers in Austria.
All reform scenarios have positive redistributive effects, either by increasing support for households in the lower half of the income distribution or by reducing support for those in the upper half. Under the broadly fiscally neutral reform that increases benefits for low-income families with children, disposable income of eligible households in the bottom decile rises by 6%, while households in the top decile experience a smaller increase of 0.6%. Figure 1.26 illustrates the redistributive trade-offs and potentials for savings.
Impact of the reforms by income decile, as % of pre-reform equivalised disposable income, eligible families, 2024
Note: Deciles are based on the equivalized disposable income distribution in the baseline (pre-reforms) scenario, using the OECD modified equivalence scale.
Source: OECD calculations using the EUROMOD J1.86+ model and EU-SILC 2022 data, 2025 policies, see TBP Reforming family transfers in Austria. Source: OECD calculations using the EUROMOD J1.86+ model and EU-SILC 2022 data, 2025 policies, see TBP Reforming family transfers in Austria.
Improving government spending efficiency
Government costs of providing public services and goods offer possibilities of additional spending savings. With high structural expenditures—such as public wages, social service delivery, and infrastructure—and a complex multi-level governance system involving the federal, Länder and municipal levels, there is a risk that production costs grow faster than output. In 2024, government production costs amounted to 26% of GDP, slightly above the OECD average but consistent with Austria’s overall high level of public spending. These costs have increased recently by 1.8 percentage points of GDP between 2022 and 2024, linked to elevated inflation (Figure 1.27, Panel A). The largest component is the purchase of goods and services, accounting for about 45% of total costs in 2023, followed by employee compensation, which represents around 42% (Figure 1.27, Panel B).
Note: Panel B: The OECD aggregate corresponds to the OECD countries members of the European Union.
Source: OECD National Accounts Statistics (database).
Public employment represented about 15.6% of total employment in 2023, slightly below the OECD average of 18.4% (OECD, Governance at a Glance, 2025). Growth in public employment has been modest in recent years. The government wage bill has risen due to wage indexation but remains contained compared with OECD and EU averages. However, the age structure of the public workforce presents opportunities as well as challenges for efficiency gains. Around one-third (33%) of central government employees are aged 55 or above and will retire within the next decade (Figure 1.28). This natural turnover offers scope to reorganise service delivery, modernise administrative structures, and gradually reduce the wage bill by reducing public employment thanks to going more digital.
Distribution of employees in central administration by age, 2023
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. For Poland, age groups refer to under 30 years old, 30-49 years old, and 50 years old and over; for France, data refer to 2021; for Denmark, data are reported in full-time-equivalents (FTEs).
Source: OECD (2024), Survey on the Composition of the Workforce in Central/Federal Governments; ILOSTAT (database) Employment by sex and age, Annual Labour Force Statistics (LFS).
Public procurement and outsourcing represent a major share of Austria’s public spending and economic activity. In 2023, public procurement amounted to around 15% of GDP—above the OECD average of 12.7% of GDP - and accounted for 30% of total public expenditure (Figure 1.29). Outsourcing, defined as government purchases of goods and services from external providers, represented 11.8% of GDP. Of this, 7.1% of GDP covered goods and services directly used by the government, while 4.7% of GDP financed services delivered to the public by non-government contractors, particularly in health care, housing, transport, and education (Figure 1.29, Panel B). Part of these amounts are purchased from government-controlled units, in particular, from the federal railway infrastructure unit, property management vehicles and long-term care facilities. At the same time, large outsourcing occurs in current transfers in the areas of childcare, hospitals and social services.
Austria’s procurement system rests on a solid legal and institutional framework. The Federal Procurement Act (BVergG 2018) aligns national legislation with EU procurement directives, and the Action Plan for Sustainable Public Procurement (2021) integrates environmental goals into procurement policy. Austria also performs well on innovation procurement, ranking third in Europe and scoring above the EU average in most indicators (EU, 2024). However, with only around half of innovation-oriented policy measures fully implemented, the framework could be further strengthened. Updating the action plan to integrate digitalisation and AI-driven tools would enhance efficiency and transparency. Austria’s Digital Government Index score (0.55) remains below the OECD average (0.61), indicating room for improvement in e-procurement and data-driven oversight.
Despite these strengths, Austria lags leading EU countries in certain dimensions of procurement systems. The publication rate of bids and the proportion of procedures awarded to the cheapest bid (30% for the later) are lower than the EU average (58%) (EU, 2023). Expanding the use of outcome-oriented tools and monitoring systems would help ensure better value for money. Austria currently lacks spending targets and systematic measurement of innovation procurement. Financial incentives and capacity-building initiatives for contracting authorities are also limited. Strengthening competition—particularly by increasing publication rates and improving SME access—would further enhance efficiency and innovation in public procurement.
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. Panel A: Data for Türkiye are not included in the OECD average. A large share of general government procurement in the Netherlands is spent on social transfers in kind via market producers, scholastic grants and mandatory health insurance systems.
Source: OECD National Accounts Statistics (database).
Improving efficiency in fiscal federalism
Austria’s multi-tier fiscal system—comprising the federal, regional (Länder), and municipal levels—assigns significant spending responsibilities to subnational governments, notably in housing, education, and social services, while granting them limited revenue autonomy (OECD, 2021a). The fiscal equalisation system (Finanzausgleich, FAG) governs the sharing of tax revenues between the federal government, nine Länder, and over 2,000 municipalities. Its goal is to ensure all levels of government have adequate resources and to reduce vertical (across levels) and horizontal (across regions) fiscal imbalances. In practice, however, the system remains highly centralised: transfers from the federal level dominate, resulting in one of the largest vertical fiscal imbalances in the OECD (OECD, 2021a).
The fiscal equalisation mechanism operates through three main layers. First, a revenue-sharing formula allocates most federal taxes—VAT, PIT, CIT, and excise duties—among levels of government. Under the Fiscal Equalisation Act 2024–2028, Länder receive about 20.2% and municipalities 11.9% of shared taxes. Second, vertical transfers compensate subnational governments for gaps between revenue and expenditure responsibilities, particularly in education, health, housing, social welfare, and infrastructure. Third, horizontal equalisation transfers redistribute resources from fiscally stronger regions (for example Vienna, Upper Austria) to weaker ones. These are largely population-based, with limited adjustments for cost differences or fiscal capacity.
The efficiency and equity of Austria’s fiscal equalisation framework could be improved. Population-based transfers insufficiently reflect needs or performance, limiting incentives for efficiency and innovation. Allocating without enough weight on need is clearly inefficient, leading to disparities in services and gives weak incentives for efficiency. The weak link between spending responsibilities and revenue autonomy also constrains accountability: Länder and municipalities oversee major expenditure areas but have little power to set tax rates or introduce local levies (Schratzenstaller, 2015).
The Fiscal Equalisation Act 2024–2028 introduced additional funding earmarked to certain priorities. A new “Future Fund” (Zukunftsfonds)—worth EUR 1.1 billion annually—supports targeted investment in childcare, housing, and climate protection, improving alignment with national priorities. Additional earmarked funding of EUR 2.5 billion for health and long-term care complements these measures. However, at just 0.1% of GDP, the Future Fund’s scale limits its macroeconomic effect. While the Act reaffirmed existing transfers, deeper structural reform—particularly on revenue-sharing rules, local tax powers, and performance-based allocations—remains pending. In November 2025, the government, Landers and municipalities agreed on a new national stability pact aligned with Austria’s commitment to bring back the deficit to 3% by 2028. The national stability pact breaks down the national deficit trajectory into maximum deficit trajectory by sub-level of government. Strengthening local incentives through conditional or performance-linked grants could promote cost efficiency, innovation, and better service delivery.
Spending reviews are an effective tool for identifying efficiency gains, cost savings, and resource reallocations (Doherty and Sayegh, 2022). Austria launched its spending review process under the 2017 Intergovernmental Fiscal Relations Act, and in 2021, prioritized targeted reviews on green and digital transformations within its Recovery and Resilience Plan (RRP). Current reviews cover only about 5% of total government expenditure, with a recent shift toward green spending, which represents around 10% of the budget. Broader and more systematic reviews could yield greater savings, as shown by Slovakia (8% savings from reviewed spending) and the Netherlands, where rotating, targeted reviews cover a wide share of expenditures. Results from Austrian spending reviews are not yet fully integrated into the annual or multi-annual budget process. Although the inclusion of green review results in the annual climate budget supplement is a step forward, stronger links between review outcomes and fiscal decisions are needed. Examples from Australia, the UK, and New Zealand show that direct alignment of reviews with budget planning increases their fiscal impact. Transparency has improved—all completed RRP-related reviews were published immediately online—but most earlier reviews remain inaccessible. Publishing terms of reference, interim and final reports, implementation data, and disclosed savings or reallocations would further enhance accountability.
1.3.4. Rebalancing taxes from labour to more growth-friendly revenues
A more growth-friendly tax system could support medium-term fiscal consolidation and long-term sustainability. Austria’s tax-to-GDP ratio is the seventh highest in the OECD, with a heavy reliance on labour taxation and relatively low revenues from corporate and property taxes (Figure 1.30). The role of property taxes is discussed in Chapter 3. The eco-social tax reform (2022–2025) slightly improved the revenue mix by introducing carbon pricing for sectors outside the EU ETS, reducing income taxes for lower and medium brackets, and gradually lowering the corporate income tax rate from 25% to eventually 23% in 2024. Additional tax credits and allowances were introduced to promote especially green investment and offset family burdens. Firms can now deduct 10% of their investments in fixed assets and a higher rate of 15% of their ecological investments, however overall limited with investments of EUR 1 million a year. For a limited period from November 2025 to December 2026, the rate of the tax allowance for investments was increased from 10% to 20% and from 15% to 22% for ecological investments. Despite these measures, the labour tax wedge declined only marginally, from 47.2% in 2023 to 46.9% in 2024, remaining among the highest in the OECD.
Decomposition of tax revenue, % of GDP, 2024
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. Taxes on income include taxes on profits and capital gains. Unallocated taxes on income, which are shown together with the "other taxes" category in the graph, refer to receipts that cannot be identified appropriately as income taxes from individuals and corporate enterprises. Individual income and Social Security contributions are grouped together. Data for the OECD average refer to 2023.
Source: OECD (2025), OECD Revenue Statistics (database).
Taxes on labour should be reduced in favour of other taxes
The labour tax wedge—among the highest in the OECD—places a heavy burden on employers and workers alike, dampening job creation and labour supply, particularly among low-income and second-earner workers (Figure 1.31). Empirical evidence shows that employment in these groups is sensitive to labour costs (L’Horty, Martin and Mayer, 2019). High effective tax rates also discourage female full-time employment and prolong unemployment among older workers (OECD, 2011). In Austria, this weighs on competitiveness, especially in export-oriented manufacturing, where rising labour and energy costs already constrain margins. While Austria’s skilled workforce and strong industrial base help offset these pressures, the high labour tax wedge remains a structural impediment to participation and productivity. With rapid ageing and labour shortages, expanding labour supply—especially from women and older workers—is essential. Reducing the tax burden on labour, particularly for vulnerable and low-wage groups, and shifting taxation toward less distortionary bases, such as value added taxes, environmental taxes, recurrent property, inheritance, and gift taxes, would improve both efficiency and equity (Akgun, Cournède and Fournier, 2017). Such reforms would strengthen employment incentives, enhance competitiveness, and support inclusive growth.
By household type and wage level, as % of labour costs, 2024
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries. Data correspond to income tax plus employee and employer contributions less cash benefits. The household type ‘single no child’ corresponds to a wage level of 100% of average wage and ‘married one earner couple 2 children’ corresponds to a combined wage level of 100%-0% of average wage.
Source: OECD (2025), Taxing Wages 2025: Decomposition of Personal Income Taxes and the Role of Tax Reliefs.
The two main components of the tax wedge are social security contributions and personal income taxes. Social security contributions are relatively high and personal income tax in Austria applies at relatively low-income levels (Figure 1.32) with marginal tax rates rising steeply for low- to middle-income earners (Figure 1.33). There is room to reduce social security contributions and personal income tax rates as part of a wider reform to raise other taxes and raise the efficiency of the system overall. Reducing marginal rates for these income groups by adjusting the tax structure or using income-related tax credits for that group, could help lower the overall tax burden on labour income, as well as helping to offset the burden of social contributions.
2022
Source: OECD Income Distribution (database).
Illustrative simulation of effective tax rates for a family without children, 2024
Note: Bars correspond to the mean taxable income of income deciles from d1 to d10, calculated by adding mean taxes to the mean disposable income and subtracting mean transfers. Special payments are included. Marginal rates are as of 2024.
Source: Author's calculations based on OECD Income Distribution (database).
A revenue-neutral reduction in labour taxation would boost labour supply and could benefit lower income households but would require raising revenue from other sources. Consumption taxes are among the least distortive forms of taxation, and could be used extensively in Austria, although given the current high level of inflation, an appropriate timing should be considered. VAT revenues, at 8% of GDP, are slightly above the OECD average of 7%, but their share in total tax revenues remains relatively low (Figure 1.34). The standard VAT rate of 20% is also just above the OECD average of 19.2%. Nevertheless, there is room to increase VAT revenues by lowering turnover registration and collection thresholds—which are relatively high compared to peers such as Sweden, the Netherlands, and Germany—and by narrowing the range of goods and services subject to reduced rates. More revenues could also be raised from other taxes including corporate and property taxes, and energy taxes.
Note: The OECD aggregate corresponds to the unweighted average of the OECD countries.
Source: OECD (2024), Consumption Tax Trends 2024: VAT/GST and Excise, Core Design Features and Trends.
Increasing corporate tax collections
Corporate tax revenues in Austria are relatively low despite a comparatively high statutory rate (Figure 1.35). Compared with peers such as Sweden and Denmark—where corporate income tax rates are lower—Austria collects less revenue from corporates, reflecting structural and policy factors. The economy is dominated by SMEs, many of which are unincorporated and taxed under personal income tax. Certain exemptions, such as group taxation regimes, can reduce effective taxation. Non-corporate investment vehicles shift income toward capital taxation under preferential or deferred regimes. Aligning the tax treatment of these different business forms, would broaden the corporate tax base, enhance neutrality, and could create space to further reduce the statutory rate without lowering revenues.
Central government, 2023
Source: OECD (2025), Corporate Tax Statistics (database).
Introducing a tax on intergenerational transfers
Wealth in Austria is highly concentrated and largely inherited (Figure 1.36). The top 10% of households hold about 56% of total wealth, one of the highest shares in Europe, and Austria’s mean-to-median wealth ratio is the fifth highest in the OECD (Eurofound, 2023; Balestra and Tonkin, 2018). Inheritances and gifts represent roughly half of average household wealth, twice the OECD average (OECD, 2024a). Both the frequency and value of inheritances are higher among the wealthiest households, reinforcing inequality and limiting social mobility. Intergenerational persistence is strong — fathers’ earnings are a particularly powerful predictor of their children’s income (Förster and Königs, 2020).
Note: Panel B: Data are not available for Finland and the Netherlands. Data for Poland removed due to data issues. The graph shows the ratio of inherited wealth to net wealth for households in second and fifth quintiles, as households in the first quintile had negative wealth in several countries. See Balestra and Tonkin (2018) for details on how the value of inheritances is computed.
Source: OECD Wealth Distribution Database; and OECD (2025), Inheritance Taxation in OECD Countries, OECD Tax Policy Studies, No. 28.
Introducing a tax on intergenerational wealth transfers could enhance equity and efficiency. Unlike two-thirds of OECD countries, Austria does not levy inheritance or gift taxes, except for real estate transfer duties. A well-designed inheritance tax would improve distributional fairness with limited effects on savings and could encourage labour participation among heirs and improve growth through better capital allocation (OECD, 2021b). While such taxes generally raise modest revenues—around 0.2% of GDP on average in OECD countries—they can play an important role in curbing wealth concentration and can help ensure that capital returns are appropriately taxed over the lifetime. To be effective, implementation should ensure low administrative costs, clear valuation rules, and strong international cooperation to prevent avoidance.
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